YOLO investment approach a Millennials’ minefield

By Rebecca BolesOctober 2016min read

“You only live once” thinking kills long-term wealth creation for young people.

There is a minefield of advice out there that can lead to intense confusion about where to start on the path to financial freedom. It means countless Gen-Ys (born in ‘80s and early ‘90s) are putting the issue in the far-too-hard basket.

While many Gen-Ys have cash flow thanks to their jobs, they are not wealthy and are wondering how to get there. No matter what position you are starting from, my advice is the same – start with your goals and values.

These will be the cornerstone of the entire conversation and the ideal framework to help you make decisions. Importantly, these goals and values shift the conversation away from finances/money and towards your life and how you want to live it.

Embrace the concept of Get Rich Slow, which is all about starting with whatever position you are currently in, but ensuring you definitely start now.

Starting does not have to be scary

Starting out in investing is fantastic and it gets easier as you go. This is important as the decisions you make as you get older get bigger, and the compromises you need to make to achieve these goals get bigger still. Be brave and do this. You will not regret it.

There is a clear reason we use goals and then save and invest specifically towards them. The likelihood of you overspending or blowing your budget when you know exactly what you need to do to get to your goal, is greatly reduced. The short-term gains will seem less appealing when you are 100 per cent clear about what you are sacrificing.

One of the best examples of this is when you set up a savings account called “Holidays”. By naming that account, and connecting to it, you are far less likely to swipe out of that account into your everyday spending for a boozy night out, or some new clothes.

Your brain comprehends quite quickly the impact of that decision – of course you can blow that money, but you now have less to spend on your upcoming trip. Or perhaps spending that money pushes your trip back by a month or so.

To do this effectively, start by writing down all the goals that spring to mind, and this can often look like a bit of word vomit as you get all your ideas out at once.

Then try to put a timeline on when you want to achieve these goals. The timeline is a good way to assess your goals: are 90 per cent of them supposedly happening in the next 12 months? Is that realistic? Do you need to wiggle a couple of them around?

Doing this can also help you identify if there’s a gap in what you’re trying to achieve. Perhaps all of your goals are very long term and you might want to consider bringing something forward, or creating some smaller milestones along the way to help get you towards a big goal.

The next step is to go back to the start and challenge those goals. Are they real? How important are they to you? Are they aligned with your values, as an individual, as a couple or even as a family? If things get tough, will you be prepared to dig deep for these? If the answer is no, or you are not sure, scratch them off the list and start again. You must be committed to these goals or this process will not work.

Connect your goals to your finances

Now, if you can, put a financial value on each goal. This can be a very challenging process for some goals, but the majority of them will have a financial element.

Do you want to clear some debt? You might need $5,000. You want to start a business? You might need $25,000. You want to drop to a four-day work week? Perhaps you want passive income of $15,000 per annum. You want to learn to salsa? Maybe you need $500 per month for dance classes, new shoes and some liquid courage. If you can identify this value, you can start working towards it.

Many people sit down in a planning session with pre-conceived ideas about the investment approach they would like to take. They are focused on the strategy, not the outcome. The two things I hear most often are, “I know I should buy an investment property” and “I think I could be putting more into super”.

The approach I recommend is to let your goals dictate the strategy. Do not get distracted by sexy and exciting investment strategies.

If you are looking to achieve your goal in the next one to three years, probably cash is going to be your best option. If your goal is a little bit further down the track, the investment market beckons.

Will your goal require your resources to be flexible and relatively liquid? Will your goal require you to take on additional risks to gain more exposure to returns? What do you have available to put towards your goal now and what will you have to put towards it in the future? These questions, about your underlying goal, will help you to determine your investment approach.

Common investment approaches include share portfolios, managed funds, imputation bonds, property, geared investments and even businesses. Depending on your answers to the questions, you can often easily rule out inappropriate vehicles and make your choice easier.

We have all heard the stories about how cheap property was for our parents (and even our grandparents). This isn't necessarily a reflection of how wonderful the property market is (although that’s a part of it); it is the simple math of acting and then seeing through your decision.

You change and so do your goals

Linking your finances to specific life goals means you can continually reassess and refine what is truly important to you. This will ensure you are always connected to, and care about, your financial strategy. This will be your ticket to seeing these amazing things come to life.

At a minimum, check your goals and progress on a quarterly basis. If you need to adjust your approach, look to do that at least once a year. Look for triggers in your life – a pay rise or a new job, tax returns, bonuses, lifestyle milestones.

Adopt an approach that you can maintain over many years, albeit with tweaks along the way. Sustainability is the core of Get Rich Slow. Start small, but get started.

About the author

This article appeared in the October 2016 ASX Investor Update
email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.

This article appeared in the October 2016 ASX Investor Update email newsletter. To subscribe to this newsletter please register with MyASX.

The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.